TaxTMI 
TaxTMI 
2019 (12) TMI 1150
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....rom the date when the repayment became due till the date of actual payment. 2. The relevant background of the matter is the following. During 2014 SEBI received a number of complaints relating to investor grievances and mobilisation of funds etc. by M/s Kassa Finvest Private Limited ("Kassa" for convenience), a trading member of the National Stock Exchange of India Limited ("NSE" for convenience) and BSE Ltd. ("BSE" for convenience). SEBI initiated an investigation relating to the dealings of Kassa on February 23, 2015. Pending investigation, SEBI vide ad interim ex parte order dated March 19, 2015 restrained Kassa and its directors from accessing the securities market till further orders. During the investigation a number of violations of securities laws had been noticed by SEBI. Accordingly, a show cause notice was issued on February 29, 2016 to Kassa, its directors/promoters, group persons/entities and some of the employees directing to show cause as to why action should not be taken against them for violating various provisions of SEBI Act, 1992, Securities Contract Regulation Rules, 1957, SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Marke....
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....ollected by the company in the form of loans from various investors and by promising high returns. Returns promised were in the range of 9%-13% when deposits were in the form of shares and 18% - 27% when deposits were in the form of funds. Such activity is violative of Rule 8(f) of the SCRR. Further, such activities have also violated Rule 3 of PMS Regulations because Kassa carried out operations as a portfolio manager without obtaining a certificate/registration from SEBI. Similarly, funds to the tune of Rs. 46.83 crores have been transferred from clients' bank accounts maintained by Kassa which HDFC Bank and Canara Bank to the business bank account of Kassa maintained with HDFC Bank and Canara Bank during the period 2008-2015. Further, funds to the tune of approximately 26.45 crores have been transferred from business accounts/clients' accounts maintained with various banks to related/group/associate persons/entities (against whom the impugned order has been passed). Similar siphoning off clients' securities/mutual fund units have also been noticed by SEBI. Hence, the finding that a total amount of Rs. 80.97 crores have been diverted/siphoned off from the account of K....
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....allegation against the appellant is that an amount of Rs. 2.06 crores was lent/paid to the appellant by Kassa over a period of 8 years. There is no finding that the appellant was in any way connected with Kassa in its day-to-day management. 9. It was further contended by the learned senior counsel for the appellant that all the records relating to his consultancy fee, TDS and reimbursement of other expenses from time to time are available. These details are also reflected in the audited balance sheets of Kassa for various financial years. In addition to certificates from a chartered accountant the appellant has produced his income tax returns, which also show consultancy income on a year to year basis. The learned WTM also records the fact that the appellant received consultancy fee and reimbursement for a period of 7 years during April 2008 to March 2015. It was further contended that there is a serious error in the impugned order while calculating the alleged benefits accrued to the appellant. In one place it is stated that the amount in question is Rs. 2.06 crores while in another place stated that it is Rs. 2.60 crores. 10. The learned senior counsel for the appellant fur....
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....rder. Further, it was contended that the appellant was incorrectly included in the group of Kassa but failed to either conduct any investigation or to provide any proof relating to the appellant's association with either Kassa or with its alleged wrongdoing. This fact is also emphasized in the statement made by Anil Dhawan, President of Kassa and Vivek Agarwal, Deputy General Manager ('DGM') Finance of Kassa that the client codes relating to group entities with which the appellant is associated as a proprietor were in fact handled directly by Ashok Kumar and the payments to be made to all the companies belonging to Ashok Kumar were decided by Manoj Kumar Agarwal, Anil Dhawan and Ashok Kumar. All these show that Ashok Kumar was the real Proprietor of the entities and all the activities of these entities were managed by Ashok Kumar and appellant's name was only used. 14. The learned counsel further contended that whatever payments are received by AARB from Kassa is only by means of trading profits due to this entity and even here the trading was done by Ashok Kumar and not by the appellant. Further all the monies paid to Kassa by AARB was also not taken into accoun....
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....urities and was not in a strategic position to conclude the management's involvement in such malafide activities. He was not a Key Managerial Personnel ('KMP') and had no role in day-to-day management of Kassa. He has not made any illegal gain. Given these facts the appellant had no role in the illegal activities of Kassa and, therefore, the impugned order is liable to be quashed qua the appellant. 19. Learned counsel further submitted that without prejudice to the above submissions, restraint of 10 years imposed on the appellant is too harsh particularly since he was an employee only and not a Director or KMP and grouping him with the Managing Director and other Director etc. and handing over the same punishment is both beyond law and too harsh. It was also submitted that he may be allowed to liquidate the existing portfolio as he has no other source of income. Appeal No. 38 of 2018 20. The appellant is the single largest shareholder of Kassa, holding 51.65% of shares. She is the wife of Ashok Kumar, MD of Kassa and was a former Director of Kassa for 8 years during 1995 to 2003. She was one of the entities debarred from accessing the securities market vide ex-....
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....ssional capacity, shall not be deemed as a promoter: Provided further that a financial institution, scheduled bank, foreign institutional investor and mutual fund shall not be deemed to be a promoter merely by virtue of the fact that ten per cent or more of the equity share capital of the issuer is held by such person; Provided further that such financial institution, scheduled bank and foreign institutional investor shall be treated as promoter for the subsidiaries or companies promoted by them or for the mutual fund sponsored by them;' 22. Further, the learned counsel for the appellant also relied on a number of judgements to prove his contentions. Relying on the order of Subhkam Ventures (I) (P.) Ltd. v. SEBI [Appeal No. 8 of 2009, dated 15-1-2010] it was contended that since the appellant was not in control or in-charge of Kassa the appellant is not liable for any violation committed by Kassa. 23. Further, it was contended that even if the appellant is held to be a promoter she is not liable to be charged because she was not in-charge of the day-to-day management of the company as defined under Section 141 of the Negotiable Instruments Act, 1881, whi....
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....ed order has made the appellant a victim of discriminatory and unequal treatment merely on the ground of being the wife of the Managing Director of Kassa. As regards the demand notice dated December 18, 2018 the appellant has not been even served with the notice; the fact that the demand notice is served on other persons in the same address is not a service upon the appellant; there was no direction in the impugned order to make any payment as no amount was specified in the impugned order and the Recovery Officer has no right to specify the amount which is not part of the impugned order. 25. Further, it was submitted that the corporate veil of Kassa could not have been pierced since neither the show cause notice nor the impugned order itself has proved the necessity of doing so and hence it is a breach of natural justice. 26. Learned counsel for the appellant also sought to distinguish the orders relied on by the respondent SEBI in the impugned order namely Delhi Development Authority (supra). Appeal No. 197 of 2018 27. The appellant was the Managing Director of Kassa at the relevant time holding 5% of the shares of Kassa. In addition he owned associated companies' ....
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....Rs. 3,35,22,009/- from the account of Kassa stating that most of these payments were in the form of salary etc. and there were apparent error in including the payments made to one Ashok Kumar, who is not the appellant, and therefore there was grave mistakes in the calculations. 32. It was further contended that the Recovery Certificate dated December 18, 2018 provided no basis for arriving at the amount of Rs. 80,97,62,785/-. It also does not factor in the details provided by the appellant to SEBI of 10 groups of investors whose loans amounted to approximately Rs. 64 crores. As urged earlier since these parties were in pari delicto as held in a number of judgements they cannot be granted any reliefs. Such judgements include: Sanjay Ramchandra Shirke v. State of Maharashtra [Bail Application 1848 of 2018, 27-9-2018] passed by Bombay High Court), Suman Lata Sharma v. Vinod Kumar Sharma 2017 SCC OnLine Del 11395 and Kuju Collieries Ltd. v. Jharkhand Mines Ltd. AIR 1974 SC 1892. 33. Similarly, it was further contended that this Tribunal itself held in the appeals filed by some of these investors that they were not entitled to get any benefit out of the Investors Protection Fund b....
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....llants; some of whom were Directors/Promoters of Kassa and some who were connected entities who are beneficiaries of diversion of funds from Kassa. In fact, even while claiming no connection with Kassa and its Managing Director these appellants are taking this devious argument that the clients of the broker were not investors in the securities market but were engaged in illegal loan type transactions. We find this argument not only devious but one which has to be rejected outright because this argument can vitiate the very legal foundation of the securities market. Here is a broker who is under a two-tier regulatory structure, by SEBI and the stock exchanges, and operating under tight regulatory restraints (Broker Regulations and Code of Conduct) in conducting the business of brokerage under the securities laws and the exchange by laws etc. Their claim that the investors are guilty in equal measure is tantamount to stating that some of the so called investors would barge into their office and forcefully make deposit for which the broker has no responsibility or accountability. This is not how a broker's business is to be run despite the principle of caveat emptor notwithstandin....
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.... consultancy fee was returned to a third party. If he was only a consultant of Kassa it is not clear to us how he was entitled to receive such a huge amount of Rs. 1.75 crores as a loan through an unregistered purported loan agreement in the first place and how a tripartite agreement with Kamla Narain, a client of Kassa and Kassa could be entered into and why the liability of Kassa was neutralized through this purported tripartite agreement. Moreover, when the appellant informed Kassa that he settled an amount of Rs. 14360578/- due to Kassa by paying to Kamla Narain on April 05, 2015 the acceptance letter by Kamla Narain is dated September 26, 2016. Accordingly, these documents are clearly afterthoughts and devoid of veracity. Therefore we find no reason to fault the finding in the impugned order that these are afterthoughts and the evidence now produced has no substance. We agree with the submission that two different figures Rs. 2.06 crores and Rs. 2.6 crores are given at different places in the impugned order, which the learned senior counsel for the respondent clarified that one is with the consultancy fee and the other is net of it which appears logical. In any case such typog....
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.... of 2018) that just because she is holding majority stake of Kassa she is not liable to be punished for any violation because effectively she had no role in the functioning of Kassa or its day-to-day management. Moreover, her contention that she is only a house wife and ill-informed on matters relating to companies or securities market has no merit because we note that she was a former Director of Kassa for a long period of 8 years during 1995 to 2003. Moreover, she is not just a promoter but holds 51.65% of shares of Kassa by virtue of which she is in absolute control of the company. Whether she has appointed any Director by virtue of this position is immaterial as it is a choice open to her. In any case her husband is the Managing Director of Kassa by holding just 5% of the equity shares of the Company. Therefore, effectively by virtue of being the promoter in control of the company she is allowing the Managing Director who is her husband to run the Company. By no stretch of imagination the appellant can claim shelter under either ignorance or lack of any role/function in the company. Section 2(69) of the Companies Act clearly states that a "promoter" inter alia means a person: ....